5 Most Common Reason Codes for Chargebacks

The 5 Most Common Root-Causes of Chargebacks_Blog Image

Table of Contents

  1. What are Chargeback Reason Codes?
  2. What is Friendly Fraud?
  3. What is Affiliate Fraud?
  4. How Does Bad Customer Service Impact Chargebacks?
  5. How Do Issues with Fulfillment Impact Chargebacks? 
  6. Canceled Subscriptions and Chargebacks
  7. Does the Reason Code Always Reflect the Real Reason?
  8. Know Where Your Chargebacks Come From
  9. Frequently Asked Questions

There are hundreds upon hundreds of reasons a customer might dispute a charge – and the extensive list of chargebacks reason codes is proof.

They may have been charged twice or over-charged, they might have received damaged goods or misrepresented services, or they could just be trying to cheat the system and get their purchase for free.

For the most part, chargebacks fall into five categories that we will discuss here. 

What are Chargeback Reason Codes?

When a cardholder and issuing bank initiate a dispute, they provide a package to the acquiring bank and, thus, the merchant. With this package is a reason code for the chargeback.

Chargeback reason codes are typically processed using network provider codes. These reason codes denote to the merchant why the chargeback was processed so that they know how to respond. These codes can include items like merchant errors, fraud, customer disputes, processing errors, authorization errors, or a number of other items. 

Each card network has its own reason code system, and they reflect that networks unique process. 

What is Friendly Fraud?

New call-to-actionFriendly fraud is a broad category that includes a number of different chargeback scenarios.  In most cases of friendly fraud, the customer is trying to cheat the system, purchasing the product or service and then filing a chargeback to obtain that purchase for free.  In other cases, customers may dispute a charge because they never received the product or service, their purchase was defective, the merchant continued to charge them after cancelation, or they never received a refund after being promised one. 

Anywhere from 60 to 90 percent of all chargebacks are instances of friendly fraud.

What is Affiliate Fraud? 

Affiliate fraud stems from unsavory affiliate marketers and only occurs with merchants that use this type of marketing technique.  The affiliates will drum up a large volume of fraudulent transactions just to increase their income from the merchant.  Then, they’ll cash out on their dividends before the merchant has time to notice.  

Depending on how much affiliate marketing a merchant uses, affiliate fraud can account anywhere from 10 to 60 percent of all chargebacks.

How Does Bad Customer Service Impact Chargebacks?

Often, just plain poor service is the reason behind chargebacks.  Customers who’ve been forced to wait on hold for long amounts time, been routed through countless call centers, had their emails and messages ignored, or encountered a rude representative along the way, may just be tempted to dispute the transaction as the merchant provided no other alternative.  

These types of chargebacks usually account from 10 to 30 percent of all chargebacks.

How Do Issues with Fulfillment Impact Chargebacks? 

Fulfillment – which includes picking, packing, shipping and delivery – is another common cause of chargebacks.  Late deliveries, products damaged during shipment, non-delivery of product, and poor quality control in picking and packing can all result in an unhappy customer and a potential chargeback.  

For most merchants, these account for about 1 to 15 percent of all chargebacks.

Canceled Subscriptions and Chargebacks

Download the eGuide, 4 Reasons to Hire a Chargeback Management CompanyFor merchants that operate on a subscription model, problems with cancelations can also lead to chargebacks.  Many times, customers are inadvertently charged after already canceling their subscription, thus forcing them to file a chargeback dispute.  Sometimes, customers may file the chargeback after they receive the products just to get them free.

Does the Reason Code Always Reflect the Real Reason?

Reason codes are an administrative tool used to help everyone track chargebacks. With these codes, merchants and acquiring banks have a general idea of what to expect and how, if they decide to, dispute the chargeback with a representment package. 

These reason codes work well when the chargeback reason is due to easily recognizable problems like true fraud, merchant fraud, or errors in payment processing. 

However, chargeback fraud, which includes friendly fraud or poor customer service, aren't considered part of these codes. So the original code for a chargeback reflects what the cardholder and the issuing bank claim the chargeback is, rather than what it could be. 

With that in mind, it's impossible for a merchant to actually understand the real reason behind something. It's more important that the merchant understand how to provide that chargebacks are fraudulent based on real evidence gained through solid record keeping and a reputable chargeback management partner. 

Know Where Your Chargebacks Come From

It’s vital to know what’s causing your chargebacks, so you can not only fight them but prevent them from the ground up as well.

Chargebacks cost merchant’s way more than just the loss in sales.  Once you add in marketing expenses, cost of customer acquisition, transaction fees, costs of goods and more, chargebacks often run merchants more than two times their initial losses.  They can also put merchant accounts in jeopardy and threaten the very payment methods you need to do business.

Identifying your chargeback reason codes, understanding them, and taking steps to remedy the root causes of your chargebacks is key to keeping your merchant accounts intact. 


What are the major card networks with reason codes?

Visa, Mastercard, American Express, and Discover all have unique reason codes and a unique, but similar, chargeback system.


Can a merchant or network be responsible for a chargeback?

Most networks include a reason code for merchant error, in case something like authorization or processing was an issue on the merchant’s end.


What are the three sources of chargebacks?

True fraud, friendly fraud, and merchant error. All types of chargebacks typically fall into one of these three categories.


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Get the guide, Chargebacks 101: Understanding Chargebacks & Their Root Causes